Prepare Cash Budget For 3 Months Windsor Corporation expects the following cash
ID: 2563780 • Letter: P
Question
Prepare Cash Budget For 3 Months
Windsor Corporation expects the following cash receipts and disbursements during the first quarter of 2016 (receipts exclude new borrowings and disbursements exclude interest payments on borrowings since January 1, 2016)
The expected cash balance at January 1, 2016, is $145,000. Windsor wants to maintain a cash balance at the end of each month of at least $130,000. Short-term borrowings at 1% interest per month will be used to accomplish this, if necessary. Borrowings (in multiples of $1,000) will be made at the beginning of the month in which they are needed, with interest for that month paid at the end of the month. Prepare a cash budget for the quarter ended March 31, 2016.
January February March Cash receipts $500,000 $510,000 $470,000 Cash disbursements 460,000 590,000 490,000Explanation / Answer
Answer:
Windsor Corporation
Cash Budget for the Quarter Ended
31-Mar-16
January
February
March
Beginning cash balance
145000
185,000
130,750
Cash receipts
500,000
510,000
470,000
Short-term borrowings
0
26000
20,000
Cash available
645,000
721,000
620,750
Cash disbursements
460,000
590,000
490,000
Interest payment
0
250
450
Total cash disbursements
460,000
590,250
490,450
Ending cash balance
185,000
130,750
130,300
Working notes for the answer:
1
For the month of the February
Available balance is
=185000+510,000
=695000
Balance after payment will be
=695000-590,000
=105000
But company desired balance is 130,000 so company needs to borrow
=130,000- (105,000)
=25000
25000+ 1%(25000)
=25250
but company can borrow in the multiple of 1000 so it can borrow 26000
_____________________________
2
For the month of the March
Available balance is
=130750+470,000
=600750
Balance after payment will be
=600750-490,000
=110750
But company desired balance is 130,000 so company needs to borrow
=130,000- (110750)
=19250
but company can borrow in the multiple of 1000 so it can borrow 20,000
Interest expanses
=1% *20000+1%*25000
=200+250
=450
Windsor Corporation
Cash Budget for the Quarter Ended
31-Mar-16
January
February
March
Beginning cash balance
145000
185,000
130,750
Cash receipts
500,000
510,000
470,000
Short-term borrowings
0
26000
20,000
Cash available
645,000
721,000
620,750
Cash disbursements
460,000
590,000
490,000
Interest payment
0
250
450
Total cash disbursements
460,000
590,250
490,450
Ending cash balance
185,000
130,750
130,300